Cryptocurrencies – Tackling Taxation Aspects

Blockchain is defined as an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value . While this innovation is undoubtedly the buzzword on everyone’s lips, few manage to grasp the multitude of legal consequences arising out of this technology. Through a collaboration between blockchain technology, smart contracts, cryptocurrencies and the Internet of Things (IoT), many are foreseeing a future with innovative ways of contracting. 

What are the legal implications with regard to taxation? 

A central issue to the question of taxation and blockchain, essentially how states plan to tax cryptocurrencies, is the way the EU currently regards cryptocurrencies such as the infamous Bitcoin. 

In 2012, the European Central Bank (ECB) defined Bitcoin as a virtual currency scheme, having certain innovations that make its use more similar to conventional money. The ECB also referred to it as high-risk, decentralised, peer-to-peer network based and unregulated .  

Fortunately, or unfortunately, many EU states have taken a ‘wait and see’ approach with regards to the status and nature of cryptocurrencies and this becomes even more evident when analysing national legislations.  

On the 13th of December 2013, the European Banking Authority (EBA) warned consumers on virtual currencies and emphasized the risk emanating from buying, holding or trading virtual currencies such as Bitcoins. It added that consumers are not protected through regulations when using such virtual currencies . 

Additionally, in July 2014, the EBA issued an opinion on virtual currencies, outlining that a regulatory approach that addresses virtual currencies comprehensibly would require a substantial body of regulation and whilst such a regime is not in place, the EBA recommended that national supervisory authorities discourage the use of virtual currencies . 

An important breakthrough came about in October 2015, where the Court of Justice of the European Union (CJEU) issued a judgment ruling that the exchange of traditional currencies for units of bitcoin is exempt from VAT. In this case, Mr. David Hedqvist, a Swedish national requested a preliminary decision from the Swedish Revenue Law Commission in order to establish whether VAT should be paid on the purchase and sale of bitcoin. Following a commission ruling that bitcoin should be exempt from VAT, the Swedish Tax Authority appealed to the Supreme Administrative Court, submitting that the transactions that Mr. Hedqvist intends to effect are not covered by the exemptions in the VAT Directive. After referring to the CJEU, it was decided that transactions to exchange traditional currencies for units of bitcoin and vice versa constitute the supply of services for consideration within the meaning of the VAT Directive. However, the Court also held that the transactions are exempt from VAT under the provision concerning transactions relating to ‘currency, bank notes and coins used as legal tender’ . This ruling was pivotal, since it not only obliged member states to exempt transactions relating to ‘currency, bank notes and coins used as legal tender’, but it also defined bitcoin as a currency, rather than a commodity. It is important to point out that this judgment dealt with currency exchange transactions and VAT would still be applicable in relation to taxable supplies of goods or services, such as that case where retailers accepts cryptocurrencies for means of payment.

In May 2016, the EU Parliament voted in favour of a resolution suggesting that the EU Commission should set up a taskforce to monitor virtual currencies to prevent such currencies’ use from money laundering or the financing of terrorism . 

Even though many developments have occurred, the crucial questions are yet to be answered . The major dilemma revolves around the nature of cryptocurrencies. It is necessary to highlight that Malta does not yet have laws or regulations in place pertaining to cryptocurrencies such as Bitcoin and the principles emanating from the Hedqvist judgments are the ECJ’s first decision in relation to the taxation of cryptocurrencies. 


Nicholas Warren
Senior Manager within the Financial Services Practice Group


Ian Zahra
Legal Trainee

Chetcuti Cauchi Advocates

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